2015 (9) TMI 1308 - SC - Indian Laws

Appointment of an arbitrator - existence of dispute - respondent-company submitted that, in fact, there is no dispute between the parties and there is no reason for appointment of an Arbitrator - Held that - As there was a dispute with regard to quality of material supplied, some letters were exchanged between the parties and the representatives of both the parties had also met for the purpose of resolving their disputes but unfortunately, the disputes with regard to quality of the material supplied could not be resolved and ultimately the respondent company had to invoke the bank guarantee. In the aforestated circumstances, it cannot be said that there is no dispute between the parties and therefore, in my opinion, an Arbitrator is required to be appointed as per the provisions of Section 11(6) of the Act. - Decided in favor of petitioner.

Summary

Issues involved:
Appointment of Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996; Dispute over quality of material supplied; Invocation of bank guarantee without prior intimation; Rejection of application under Section 9 of the Act; Disagreement on the need for an Arbitrator; Interpretation of arbitration clause in the contract.

Analysis:
The petitioner, a company incorporated in China, sought the appointment of an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, to resolve a dispute with the respondent, an Indian company, regarding a contract for the supply of Transformers and electrical equipment for a project in Sikkim. The respondent alleged defects in the supplied material, leading to the invocation of a bank guarantee without prior notice to the petitioner. The petitioner's application under Section 9 of the Act was dismissed by the District Court and subsequently by the High Court and the Supreme Court. The petitioner contended that the bank guarantee was invoked unjustly, constituting a breach of contract, necessitating the appointment of an Arbitrator.

The respondent argued that there was no actual dispute between the parties, emphasizing the rejection of the petitioner's previous legal applications and the lack of interim protection granted. The respondent asserted that the bank guarantee issue had become moot after encashment, indicating no ongoing dispute. However, the petitioner maintained the necessity for arbitration based on the breach of contract due to the bank guarantee invocation without valid reasons. The Court analyzed the contract's arbitration clause, which mandated arbitration in case of unresolved disputes, and noted the unsuccessful attempts by both parties to settle the quality dispute, leading to the bank guarantee invocation.

Ultimately, the Court found that a dispute existed between the parties, warranting resolution through arbitration as per the contract's arbitration clause and Section 11(6) of the Act. Former Chief Justice A.P. Shah was appointed as the Arbitrator, with Delhi designated as the place of arbitration. Both parties agreed to cooperate for a swift resolution, aiming to conclude the proceedings within six months. The Court directed the Registry to inform the appointed Arbitrator accordingly. The Arbitration Petition was allowed in favor of the petitioner, with no costs imposed on either party.